Gold Hit By Bets That Great Britain Will Hang In With The EU.

June 23, 2016 - 4:53pm

 by Gary Wagner

Back in the 1960s and 1970s, a commercial for women’s hair coloring asked the question: “Does she or doesn’t she?” Today we ask a similar question about Great Britain and the European Union. 

Does Great Britain stay with the union that has brought Europe – Great Britain included – unprecedented prosperity or does GB leave and cast itself off into uncharted waters. The nay voters seem to believe that there is no cost for leaving, should that happen. (Granted, at this moment and unlikely prospect as clothes come cnear closing time.)

But for GB it would certainly unravel all sorts of trade and political connections and put it at the mercy of the two behemoth economies, namely the E.U. and the U.S. Just the thought of how many agreements, governmental and private, that would have to be renegotiated or rewritten makes one nauseated. 

Be that as it may, markets today are betting on No Exit. Equities around the world (except Shanghai, which has parochial problems) were up sharply to moderately. The indexes based in the EU, in particular, soared, as did the FTSE in London.

The Dow zoomed above 18,000; the S&P 500 jumped over the 2100 mark and NASDAQ was up 1.60%. 

As might be expected, the euro and British pound jammed into overdrive and were the dominant up currencies for the day. The U.S. dollar is, however, up mightily against the yen (by 1.45%), an indication that today is a risk-on session. The yen is generally considered to be a safe haven.

Gold, in spite of a small helping hand from the dollar decline against the euro, is off around $7.00 in the spot market, after 4PM in New York. Silver made a small gain of about 0.35%.

Another indicator that today was a risk-on day appeared in the rise in the yield of 10-year U.S. Treasury bonds and the reciprocal decline in the face price. The yield is heading toward 1.75%.

As might be expected during a risk-on day, West Texas Intermediate oil, absent any other serious news, was up almost 2.00% while Brent North Sea jumped more than 2.00%.

The VIX volatility index liked what it thought was coming out of Great Britain regarding the EU vote, declining almost 18.00%. 

The CME’s FedWatch implied probability Index was betting ever so slightly more that the British “Bremain” would increase the chance of a Fed rate hike late in July. 

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

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